MR RECORDER LUBA QC
Introduction
1.
This is a Claimant’s appeal from the rejection by an Employment Tribunal
of a complaint of unfair dismissal.
2.
The decision was promulgated by the Employment Tribunal at London
Central, chaired by Mr Russell, Tribunal Judge. It was notified to the
parties in writing on 1 October 2009 and full Reasons were furnished
by the Tribunal on 26 November 2009.
Essential background
3.
The Respondent company operates a business for the buying and selling of
tickets to sporting and other entertainment events. In the months of June and
July 2008, it was the victim of a fraud in which approximately €1.7m were
lost from its German bank account. The fraudsters utilised unauthorised and
false electronic bank transfer transactions to purchase tickets online.
4.
The Claimant was employed by the Respondent as its Financial Controller
and he had been so employed since 1 May 2007. It was his
responsibility to monitor the German bank account but he did not detect or
report the fraudulent transactions until August 2008, by which time significant
sums had been lost.
5.
His line manager was the Chief Financial Officer, Mr Van de Wal.
Mr Van de Wal met with the Claimant on 14 August 2008
and on the same day the Claimant was notified by Mr Jones, the Human
Resources Director, that a disciplinary meeting would be convened to be
conducted by himself, that is to say, Mr Jones and Mr Van de Wal.
6.
The letter containing the invitation to the disciplinary hearing
referred to three issues, the third of which, later described by the Tribunal
as the “central allegation” was in these terms:
“Failed to identify or address large amounts of cash leaving the
German bank account totalling to roughly €1.7m within several weeks which were
not instructed by Seatwave.”
7.
The disciplinary meeting itself was held on 2 September 2008.
On 3 September 2008, Mr Jones wrote to the Claimant in these
terms:
“Following your disciplinary hearing held at 15:00hrs on
2 September 2008, with Aksel Van de Wal, CFO and
myself, I am writing to confirm the decision to summarily dismiss you on the
grounds of Gross Misconduct.”
8.
The third paragraph of the letter continues:
“Following your disciplinary meeting yesterday we have concluded
that you have been negligent in the completion of your duties as follows [...]
an absolute failure to complete non-UK bank reconciliations leading to
significant financial losses for the company.”
9.
In the fourth paragraph this was said:
“Your serious negligence in the performance of your duties as
summarised above clearly justifies Summary Dismissal. This means you are
dismissed from Seatwave Ltd, with immediate effect without payment in lieu
of notice.”
10.
The letter notified a right of appeal but although the Claimant
activated that appeal process, he did not further pursue it.
11.
In his complaint to the Employment Tribunal Service, the Claimant set
out his understanding of the terms and circumstances of his dismissal, in his
form ET1. He wrote this at paragraph 3:
“Following a disciplinary hearing on 2 September 2008
I was summarily dismissed on the grounds of gross misconduct and this was
confirmed in a letter to me dated 3 September 2008.”
12.
In the same document at paragraph 8, he wrote:
“Furthermore the assertion that my failure to pick these charge backs
up amounts to gross misconduct is disproportionate and unreasonable.”
13.
In its response to the claim, the Respondent company gave written particulars
which include the following at paragraph 17:
“Having considered the Claimant’s response to the allegations,
Aksel considered that the Claimant had been negligent in carrying out his
duties. His failures were so fundamental and so serious that Aksel decided
that they warranted summary dismissal.”
14.
The document continues at paragraph 19:
“It is denied that the Claimant was unfairly dismissed from his
employment. The Respondent contends that the Claimant was dismissed fairly in
accordance with section 98(2)(a) of the Employment Rights Act 1996 on
the grounds of capability and that the Respondent acted reasonably in treating
that reason as sufficient to dismiss.”
15.
The Employment Tribunal considered this case over three days, in
September/October 2009. Both parties were represented by counsel and the
Employment Tribunal had the benefit of counsel’s closing submissions in
writing. The Tribunal found at paragraph 18 of their written Reasons as
follows:
“We find that the dismissal was due to both capability and
conduct under section 98(2)(a) and (2)(b) Employment Rights Act 1996
but the primary reason for dismissal was conduct under section 98(2)(b)
specifically the failure of the Claimant to adequately monitor the cash
position on the company’s German bank account which meant that the company was
unaware that they were incurring significant losses perhaps as much as €1.7m
over a period of a few months surrounding June 2008.”
16.
Later, in the same paragraph, the Tribunal state the following finding:
“Our finding that the Claimant had neglected one of the central
parts of his job as Financial Controller.”
17.
Those conclusions on the part of the Tribunal must be seen, of course,
in the context of their earlier findings of fact, which are fully set out in
their written Reasons, starting at paragraph 7 and concluding at paragraph 17.
It is not necessary to recite more than a handful of extracts from their
findings, but both parties drew our attention to paragraph 15, in which the
Tribunal record as follows:
“Ultimately we also feel that the company was entitled to come
to the conclusion that the Claimant was guilty of serious or gross negligence
in that the Claimant’s omission was capable of falling within the
non-exhaustive list of gross misconduct listed in the company’s disciplinary
procedure.”
At the end of that paragraph, the Tribunal identified that
particular misconduct as being “failing to monitor the German account and
report the fraud”. They continue that that is “clearly a matter which could
potentially lead to summary dismissal”.
18.
In paragraph 16, the Tribunal record firstly, that the Claimant admitted
that he did not monitor, or at least did not adequately monitor, the account.
Three lines or so further into that paragraph, they find “it was his primary
obligation to check the account”. Later in the same paragraph, they find as a
fact that “the Claimant’s failure to do so was a key to the losses continuing,”
and that:
“He either did [check] or should have been checking the German
bank account every day and the anomalies were, if he had done so, very obvious,
and yet they were left unreported.”
19.
The Employment Tribunal went on to find that the procedures followed by
the employer in the lead-up to the dismissal were not perfect but that they
were fair, and that the decision to dismiss summarily for gross misconduct was,
in all the circumstances, a reasonable one. The Employment Tribunal
accordingly dismissed the claims for unfair dismissal and for failure to pay
notice pay. From that decision, the Claimant appeals to this Employment Appeal
Tribunal.
The appeal
20.
The primary ground of appeal is that the Respondent, having asserted in
its answer to the claim, that the reason for dismissal was “capability”, the
Employment Tribunal could not have, and should not have, found that the
dismissal was a fair one, on the basis of the wholly different reason of “misconduct”.
Since the Respondent had failed to establish the reason that it expressly
relied upon in its own pleadings, the Claimant’s claim should have succeeded.
That is a short summary of the first ground of appeal in the pithy, amended
Notice of Appeal, which goes on to identify two further grounds of appeal.
21.
Ground 2 asserts that the stated reason for dismissal was capability,
but that the procedures followed in the lead-up to dismissal were not apt for
capability, but for conduct. Ground 3, which is in truth a variant of ground
1, was that the Employment Tribunal had substituted its own reason for
dismissal of the Claimant (conduct) for that of the Respondent (capability).
Submissions and law
22.
We have had the benefit of skeleton arguments and oral argument for both
parties: Mr Medhurst for the Claimant, and Mr Savill for the
Respondent. To put their submissions into its central context, we remind
ourselves of the relevant legal framework contained in the Employment Rights Act 1996.
That provides a statutory right of an employee not to be unfairly dismissed (section
94). In determining whether a dismissal is fair or unfair, it is for the
employer to show the “reason”, or if more than one reason, the principal reason
for the dismissal (section 98(1)(a)). The reason must be a statutorily
specified reason, or some other substantial reason of a kind such as to justify
the dismissal of a person, holding the position of a particular employee (section
98(1)(b)).
23.
The specified reasons include a reason which relates to capability and a
reason which relates to conduct (section 98(2)). Capability, in relation to an
employee, is defined in section 98(3)(a) as meaning “his capability, assessed
by reference to skill, aptitude, health or any other physical or mental quality”.
24.
For the Claimant, Mr Medhurst, who did not appear at the Employment
Tribunal below, acknowledged in opening his oral submissions, that the point
taken in the Notice of Appeal was, essentially, a pleading point. Pursuant to
it, he submitted both orally and in writing, that the reason given by the
Respondent in its ET3 form had been “capability”. There had been no
application to amend that by the Respondent. The Employment Tribunal had
proceeded to hear the case as the case had been pleaded and consequently, in
the absence of evidence about misconduct, it had made, in his submission, none
of the material findings that would be associated with a case of misconduct,
such as those going to the mental element of culpability, that one might expect
to find in a misconduct case.
25.
Mr Medhurst submitted that this was, in truth, a capability case,
precisely as the employers had identified it in their ET3. He submitted that
there was a clear distinction between cases of capability and misconduct, and
no grey area between them. This case, he said, had been mislabelled by the
Employment Tribunal itself, as a conduct case, and it had failed to direct
itself to the relevant law in relation to capability.
26.
He went on to submit that the Employment Tribunal had been quite clear
that if the reason had been capability, then the employer’s procedures leading
up to the dismissal, had not been fair. It followed, submitted Mr Medhurst
in his skeleton argument, that the necessary consequence of the Employment
Tribunal, impermissibly substituting for the Respondent’s asserted reason
(capability), its own perceived reason (conduct), was an error of law. It did
not direct itself correctly. Had it done so, it would have found that the
reason for dismissal was capability. Since it had found that, in respect of a
capability dismissal, the employer’s procedures were wanting, it would
necessarily mean that the finding should have been unfair dismissal.
27.
Mr Medhurst urged in his skeleton argument that it was for this
Employment Appeal Tribunal to reverse this error, and to hold for itself that,
on the Tribunal’s findings of fact, the real reason was capability, as the
employer had asserted, and the dismissal was necessarily unfair.
28.
For the Respondent, Mr Savill, who did appear for the employers
below, submitted that this was simply a case about labels. The Claimant, he
contended, had always known that he was being dismissed for failure in his
duties of monitoring the German bank account. That had been given the label
“misconduct” in the dismissal letter. It had perhaps been wrongly labelled in
the Respondent’s answer, but that was immaterial because, as he reminded us
this morning, the Employment Tribunal had proceeded from the outset, on the
basis that the primary assertive reason being developed before them was
misconduct. There was no prejudice, he submitted, to the Claimant, deriving
from the wrong label having been used in the ET3.
Discussion and conclusions
29.
As Cairns LJ observed in Abernethy v Mott, Hay and Anderson
[1974] ICR 323:
“A reason for the dismissal of an employee is a set of facts
known to the employer or, as it may be, of beliefs held by him which cause him
to dismiss the employee.”
That passage has been approved, subsequently, in more than one judgment
of the House of Lords. In the same case, Lord Denning said:
“The employer has [...] to show the reasons for the dismissal
[...] it must be a reason in existence at the time when he is given notice. It
must be the principal reason which operated on the employer’s mind.”
30.
But both parties also reminded us of a passage from the judgment of Kilner Brown J,
in the case of Sutton & Gates (Luton) Ltd v Boxall
[1978] ICR 67. In that case, the following statement of general principle was
made, at paragraph 11:
“We have had occasion to indicate more than once that it may not
necessarily be that there is a wide range in the field of incapability, but
that incapability ought to be treated much more narrowly and strictly than has
been done in the past, and cases where a person has not come up to standard,
through his own carelessness, negligence or maybe idleness, are much more
appropriately dealt with as cases of conduct or misconduct, than of
capability.”
31.
The authorities, that address the question of moving from one asserted
reason for dismissal to another, were reviewed by this Tribunal, Waite J
presiding, in the case of Hotson v Wisbech Conservative Club
[1984] ICR 859. In that case, an employee had been dismissed against a
background of a shortcoming in takings at a club. The asserted reason for the
dismissal appeared to relate to her incompetence in managing the finances, but
had transmogrified as a result of the development of the case by the Employment
Tribunal Chairman, into one of suspected dishonesty.
32.
Faced with that scenario and a consequent appeal, Waite J said as
follows, in paragraph 50:
“The position according to authority appears to be as follows:
on satisfying the Industrial Tribunal as to the reason for dismissal under
Section 57 of the 1978 Act, the employer is not tied to the label he happens to
put on the particular facts relied upon. Thus he may say “I made the employee
redundant”, but he will not be prevented from saying later, “no, I have changed
my mind. It was really a case of incapability”. Nor will he be prevented from
running the two as alternatives, either redundancy or lack of capability. By
the same token, the Industrial Tribunal may, it appears, of its own motion,
declare that the reason relied upon by the employer was not a real reason, for
the real reason may be something that he shrank from mentioning, either through
ignorance of the technicalities involved, or perhaps through sheer kindness of
heart or natural delicacy. In the same way, some other substantial reason
[...] may be advanced by the employer, or found by the Tribunal to be the real
reason for dismissal, differing from the sole or principal reason, such as
redundancy and capability that may have been advanced by the employer himself.”
33.
The Employment Appeal Tribunal, in that case, go on to make the obvious
point, that in any circumstances where there is a shift by the employer of the
label placed upon the reason for the dismissal, then there must be the fullest
opportunity allowed to the employee, to meet the circumstances that arise from
that change. In short, fairness requires that he or she must not be prejudiced
by an employer’s change of tack.
34.
As we have already indicated, Hotson was an extreme
example of a shift, which in fairness, the employee required an opportunity to
address. In contrast, there are cases like Hannan v TNT‑IPEC (UK) Ltd
[1986] IRLR 165, in which even where an Employment Tribunal upholds a dismissal
as fair, on a reason not pleaded or argued, there may be no error if, in
reality, the matter is one of mere relabeling. Of course, if there is any
prejudice to the employee that that can be demonstrated in such circumstances
of changed tack, then an appeal may well succeed, but the Employment Appeal
Tribunal in that case went on to give guidance as to how such an argument might
be developed.
35.
Against that background of the authorities, we return to what occurred
in the instant case. We are satisfied that, at all relevant times, the
decision to dismiss had been grounded in precisely the same set of facts, that
is to say failure by the Claimant employee to monitor the German bank account,
with the result that substantial fraud went undetected until significant loss
had occurred. True it is that there has been some shifting in the label. But
it was made clear to the Claimant, in his letter of dismissal, that it was
misconduct that the employer relied upon. The Claimant, himself, appreciated
that much, when he came to complete his own claim to the Employment Tribunal in
which, as we have already indicated, he expressly acknowledged that he had been
summarily dismissed by reason of gross misconduct.
36.
Although it cannot be denied that there had been the “capability” label
given in the Respondent’s ET3, we accept from Mr Savill, and indeed from the
terms in which the Tribunal have expressed their decision, that the hearing
before them had plainly been conducted on the basis that the true reason was
misconduct. Indeed, in the Claimant’s own counsel’s written submissions at the
end of the hearing, the fact that the dismissal was being put on the basis of
misconduct was evident. In paragraph 18 of those written submissions, counsel
for the Claimant wrote as follows:
“It is submitted that the real reason for dismissal is related
to the fraud and loss of €1.7m.”
37.
At paragraph 19, counsel, under the heading “Was the reason a reason
which falls within Section 98(2) [...]” wrote as follows:
“19. Misconduct is, of course, potentially fair reason for
dismissal. This was not a true misconduct case.”
38.
Now of course, the second sentence in that paragraph 19 might,
implicitly, suggest that in fact the case had been tried on a capability basis.
But we accept the explanation given at paragraph 10 of Mr Savill’s skeleton
argument before us, that that is to be read in the context of the Appellant’s
general submissions to the Employment Tribunal, which were either that he was
being made a scapegoat for the finding of others, or that the Respondent did
not hold a reasonable or genuine belief as to the Appellant’s guilt. In short,
the Claimant’s own counsel was putting forward written submissions clearly
framed on the basis that the hearing had proceeded on misconduct grounds.
39.
Any suggestion that the Claimant might have been prejudiced by the
matter proceeding in this way rather than under the label of capability in the
ET3 is, in our Judgment, dispelled by paragraph 18 of the Tribunal’s own Reasons,
in which they say:
“The Claimant did know clearly of the case against him in
respect of the main allegation and the possible consequences and accepted this
in evidence.”
40.
That was a reference back to the start of the process that led to his
dismissal. The reference there to the main allegation, is to what the Tribunal
earlier called “the central allegation” which we have set out at the beginning
of this Judgment.
41.
Whilst we fully accept that the Notice of Appeal, as amended, contains
arguable grounds of appeal, and that we have heard well-developed argument in
support of them from Mr Medhurst, we, in the result, have no hesitation in
dismissing this appeal. On the findings that they made, and for the reasons
that they gave, the Employment Tribunal were, in our judgment, fully entitled
to find that the principal reason for dismissal in this case was misconduct.
Put very simply, if the Claimant were asked by a man in the street what it was
that he had done or failed to do, that was considered so serious by his
employer as to justify immediate dismissal, he would have answered that his employer
had relied on his failure, as the Financial Controller, to monitor a bank
account, and spot fraudulent activity that had remained undetected for months,
and caused very significant loss. To our mind, that would aptly be described
by the ordinary, reasonable man in the street, as a dismissal for misconduct.
More importantly, the Employment Tribunal has so found. We can detect no error
in its decision.
42.
Since success on the first ground of appeal was a pre-condition to
success on the second and third, we say nothing further about them beyond the
short statement that we have detected no error or misdirection on the part of
the Employment Tribunal. In our view, it made ample findings of fact,
sufficient to sustain its decision. The appeal is accordingly dismissed.
